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Responsible business conductDUE DILIGENCE IN COLOMBIA’S GOLD SUPPLY CHAINGold mining in South West Colombia

About the OECDThe OECD is a forum in which governments compare and exchange policy experiences, identifygood practices in light of emerging challenges, and promote decisions and recommendationsto produce better policies for better lives. The OECD’s mission is to promote policies thatimprove economic and social well-being of people around the world.About the OECD Due Diligence Guidance for MineralsThe OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from ConflictAffected and High-Risk Areas (OECD Due Diligence Guidance) provides detailedrecommendations to help companies respect human rights and avoid contributing to conflictthrough their mineral purchasing decisions and practices. The OECD Due Diligence Guidance isfor use by any company potentially sourcing minerals or metals from conflict-affected andhigh-risk areas.About this studyThis report is the third of a series of assessments on Colombian gold supply chains and theOECD Due Diligence Guidance for Responsible Supply Chains of Minerals from ConflictAffected and High-Risk Areas in the Colombian context. It analyses conditions of mineralextraction and related risks in the region of South West Colombia.This report was prepared by Frédéric Massé and Juan Munevar, working as consultants for theOECD Secretariat.Find out more about OECD work on the minerals sector: mneguidelines.oecd.org/mining.htmCofunded by the European Union OECD 2017. This document is published under the responsibility of the Secretary-General of the OECD. Theopinions expressed and arguments employed herein do not necessarily reflect the official views of OECD membercountries. This document, as well as any data and map included herein, are without prejudice to the status of orsovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of anyterritory, city or area.2

ContentsExecutive Summary . 4Introduction . 6The gold mining sector in Cauca and Valle del Cauca . 6Mining titles and collective territories . 7Gold mining actors in Cauca and Valle del Cauca . 8Links between gold mining, armed conflict and criminal dynamics . 10Prevalence of “Annex II risks” in Cauca. 12Serious abuses associated with the extraction, transport and trade of gold . 12War crimes or other serious violations of international humanitarian law, crimes againsthumanity or genocide . 13Direct or indirect support to non-state armed groups . 15Bribery . 16Conclusions . 17Bibliography . 18Notes . 203

Executive Summary As in other regions of Colombia, the region of South West Colombia – formallyencompassing the departments of Cauca, Valle del Cauca and Nariño, though Nariño isnot covered in this study - presents a significant number of the risks highlighted by theOECD Due Diligence Guidance for Responsible Supply Chains of Minerals from ConflictAffected and High-Risk Areas (OECD Due Diligence Guidance). Gold production in this region is mostly controlled by artisanal and small-scale miningoperations, only a fraction of which are regularised. The 2010-2011 mining censusundertaken by the government revealed that out of 544 mining units identified inCauca, 170 (31,4%) were dedicated to gold mining and more than 90% operatedwithout a mining title (MME, 2011). While a handful of multinational companies –both junior mining companies and large-scale miners - are looking to undertakeadvanced exploration programmes, the presence of non-state armed groups hasprevented them from moving forward with their plans. A significant portion of gold mining activities are undertaken by Afro-Colombiancommunities (and indigenous communities to a lesser extent), who are often targetsof extortion, intimidation and infiltration by non-state armed groups and criminalorganisations seeking to extract rents from their operations. These mining communities are sometimes organised in cooperatives or artisanal andsmall-scale miner associations that supply significant volumes to national andinternational traders based in nearby Cali (Colombia’s third largest city). Migrantworkers, sometimes including minors and women working in hazardous conditions,make up the bulk of the artisanal (known locally as barequeros) and small-scale miningworkforce. Mining municipalities in Cauca are hubs for criminal activities and have suffered theimpacts of armed conflict. A recent study by the United Nations Office on Drugs andCrime (UNODC) revealed that 70% of alluvial mining operations in Cauca are located inregions were coca is being grown. The FARC, ELN1, criminal gangs, and state forces have fought for control over theseterritories. Unsurprisingly, close to 30% of Cauca‘s 338,000 victims of forceddisplacement came from the top five gold producing municipalities. In the run-up to itsannounced demobilisation, the FARC officially abandoned its links to illegal mining inCauca, but authorities believe that the ELN is looking to progressively expand itspresence into former FARC-controlled territories. Less visible criminal networks have also succeeded in controlling part of the illegallyproduced gold. Constant police and military operations against illegal miningoperations and judicial investigations have shed light on the importance of thesenetworks, involving small-scale miners and prospectors from Antioquia, Nariño andValle del Cauca, national trading companies, local municipal authorities, and corruptlaw enforcement agents. International traders – most of whom are based in the Free Trade Zone near Cali - aresourcing from mining municipalities in Cauca. Cali is the main hub for gold produced inCauca, yet local sources report some other destinations, like Medellin, Bogotá or4

Buenaventura (by sea). Under strict scrutiny from mining authorities, the AttorneyGeneral’s Office and tax and customs agencies since 2015, the main internationaltraders in Cali have reduced the volumes of gold they source directly from Cauca. Goldfrom Cauca now transits less visibly through national traders, although Cali remains animportant hub for all gold extracted in South West Colombia. While some of these companies have sought to vertically integrate their suppliers intotheir business model to ensure better traceability, they are not prone to publiclydivulging this information or providing details about the way they undertake duediligence for all their suppliers as recommended by the OECD Due Diligence Guidance. In conclusion, as the FARC demobilises, the Cauca department has an opportunity toremove one traditional risk factor from its gold supply chain. But without furtherefforts to reduce involvement by other criminal elements in mining and tradingactivities, supply chain risks will remain high.5

IntroductionThe region of South West Colombia (including the departments of Cauca, Valle del Cauca andNariño, though Nariño is not covered in this report) presents many supply chain risks. Thepresence of artisanal and small-scale mining operations – only a portion of which are legal – aswell as large-scale multinational companies with hopes of undertaking advanced explorationprogrammes, indigenous and Afro-Colombian communities, national and international goldtraders, non-state armed groups and criminal organisations extracting rents from miningoperations, and a weak state presence makes this a high-risk area to source gold from.As in other regions of Colombia, gold mining in South West Colombia dates back to precolonial times and expanded during the Spanish colonial period. Production, declinedprogressively however, after independence before resurging in the 2000s. Today, despitebeing among Colombia’s poorest regions (24% of the population live in extreme poverty and51.6% live below the poverty line, according to the National Statistics Department) thedepartment of Cauca is Colombia’s fourth gold producer, and Cali, the capital of theneighbouring department of Valle del Cauca, serves as Colombia’s second gold trading hubafter Medellín.Indigenous and Afro-Colombian communities form a significant part of the Cauca and Valle delCauca population. In 2005, indigenous and Afro-Colombian communities comprised 21.5% and22.5% respectively of Cauca’s population, and 0.1% and 27.2% of Valle del Cauca’s population(DANE, 2005).The gold mining sector in Cauca and Valle del CaucaThe department of Cauca has had a long but intermittent history of gold mining. Goldproduction expanded rapidly in Cauca during the time of the Spanish colony in the sixteenthcentury when Popayan, Cauca’s capital, served as an important business hub and indigenousand Afro-Colombian communities provided cheap labour to extract alluvial gold.2 Followingindependence in 1819, mining activities decreased, leaving some Afro-Colombian communitiesto subsist from artisanal mining. In the early 1900s, a Franco-British company sought toundertake underground mining in Timbiquí and, in the late 1980s, a Russian company broughtin new dredging and alluvial mining technology. Both ventures were short-lived, but theyprovided some basic skills and techniques that small-scale miners in Cauca – mostly from AfroColombian communities – use to this day.In the early 1990s, the Cauca and Valle del Cauca departments produced approximately 500kgof gold annually, which dropped to 116kg in 1998. As international gold prices rose in the late2000s, production in Cauca resurged and has continued to increase steadily since 2009. Goldproduction in Cauca reached a ten-year high in 2015 at 5.3 tonnes, representing 9% ofColombia’s total production (SIMCO, 2016).6

Figure 1: Gold production in Cauca, 2005 to 2015 (in tonnes)6.05.04.03.02.01.00.02005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: Colombian Mining Information System – SIMCO, 2016Figure 2: Percentage of departmental gold production1%7%10%BUENOS AIRESTIMBIQUÍ40%GUAPI13%EL TAMBOSUÁREZOTHERS29%Source: Colombian Mining Information System (SIMCO)In 2015, 15 out of 42 Cauca’s municipalities reported gold production, with 70% of totalproduction concentrated in just two municipalities: Buenos Aires, 40%, and Timbiquí, almost30% (SIMCO, 2016).Mining titles and collective territoriesAccording to a 2014 report from the Intercultural Studies Centre of the University Javeriana inCali (Centro de Estudios Interculturales de la Universidad Javeriana) 350,000 hectares approximately 10% of the department’s territory – had been granted as concessions to miningcompanies, and more than 1 million hectares were under consideration for 652 additional7

mining titles, representing more than half of the department’s territory (Verdad Abierta,2014). According to the same report, 82,000 hectares of the 350,000 hectares with miningtitles are part of the Afro-Colombian Communal Councils (a collective territory adjudicated toan Afro-Colombian community to administrate) and 7,000 hectares overlap with indigenousreserves (Verdad Abierta, 2014).By 2012 in the Guapi, Timbiquí, and López de Micay municipalities, 26 mining titles had beengranted and more than 120 additional titles were under consideration (Cococauca, 2012). Theneighbouring Valle del Cauca department also counts ten “designated Afro-Colombiancommunity mining areas” (zonas mineras de comunidades negras delimitadas), totalling morethan 30,000 hectares (Anuario estadístico minero colombiano, 2010).Many Afro-Colombian communities living in Cauca and Valle del Cauca sustain their livelihoodwith small-scale mining activities on their collective lands (indigenous and Afro-Colombiancommunity land). However, some communities who opposed the presence of foreign minersand entrepreneurs have seen some of their leaders threatened (see section below)(Cococauca, 2016). Some indigenous communities, such as those in the Caldono and Canoasmunicipalities, are opposed to extractive activities, while others have accepted the presence ofminers in their territories (Tacueyo, Las Delicias).Gold mining actors in Cauca and Valle del CaucaArtisanal and Small-Scale Miners (ASM)Gold panners (barequeros) constitute a major part of the workforce in mining operations inCauca. This is particularly the case in the Timbiquí and Guapi municipalities, which producemore than 42% of gold from Cauca. By the end of 2015, 11,817 barequeros had registered withtheir local authority. Although Timbiquí and Guapi reported a similar number of barequeros in2015, the former produced more than twice as much as the latter (SIMCO, 2016), raisingsuspicion about the volumes declared and suggesting a heightened risk of money laundering(see OECD, 2016). As for Buenos Aires, Cauca’s major gold producer and where gold miningmostly takes place underground, 425 barequeros had officially registered with themunicipality, but local sources estimate that the number of ASM could be closer to 1,000(interview with local source).Most of the artisanal and small-scale mining workforce in Cauca is not local. According to localgovernment officials and law enforcement agents, the majority of miners come fromneighbouring departments like Nariño, Valle del Cauca, and Huila, but also from Antioquia,Chocó, Atlántico or South Bolivar (interview). A law enforcement agent estimates that nonlocal workers represent more than 80% of the mining population at certain mining sites (e.g.River Sambingo between the municipalities of Morales and Mercaderes) (interview).While there are a small number of legal artisanal and small-scale mining concessions producinggold, most gold is produced by non-regularised miners. The 2010-2011 mining censusundertaken by the government revealed that out of 544 mining units identified in Cauca, 170(31,4%) were dedicated to gold mining and more than 90% operated without any mining title(MME, 2011). Recent studies by UNODC using satellite imagery to identify alluvial miningoperations concluded that 42% of these operations are illegal, while another 28% have appliedfor concessions (UNODC, 2016); 30% are believed to hold mining titles, but none have receivedan environmental licence (UNODC, 2016). Furthermore, estimates of backhoes and dragon8

dredges range from more than 200 in Timbiquí, Guapi and López de Micay (Cococauca, 2012),to more than 500 in the whole department (interview with law enforcement officer, 2016).Cooperatives or artisanal and small-scale miner associations are important stakeholders inmining municipalities in Cauca.3 Since 2001, cooperatives were established by groups oftraditional artisanal and small-scale miners to facilitate applications for mining titles andlegalisation efforts, while also providing access to machinery, training and legal counsel,amongst other ‘services’ (interview). These cooperatives, which in some cases have receivedmining concessions in their own right, also serve as intermediaries between potential buyersand, in some cases, have been known to receive direct support from international traders (e.g.Coominercol and Coomultimineros from Giraldo & Duque) in Cali (El Espectador, 2015; Henao,2015).Large-scale companiesLarge-scale companies do not currently operate in Cauca. Although a number of multinationalcompanies – both junior and large-scale - have been granted mining concessions in the Caucadepartment, they are only undertaking preliminary studies of the area and, in most cases, haveceased exploration in this region due to security concerns. In 2014, Anglo Gold Ashanti heldsome 40 titles out of the 241 granted for the whole department, representing more than60,000 hectares in the municipalities of El Tambo, La Sierra, La Vega and San Pablo (VerdadAbierta, 2014).4 According to local sources, the company was reportedly forced to forfeit sixtitles and voluntarily return another twelve after not being able to fulfil its exploration plansdue to the presence of non-state armed groups and illegal backhoes operating on some of itsconcessions (interview with international organisation official, 2016). Even though thecompany has not begun operations in Cauca, AngloGold Ashanti reportedly requested 43additional titles, representing more than 100,000 hectares in this same department (VerdadAbierta, 2014).Other multinational companies also have interests in Cauca. Votorantim Metais (Brazil) andAnglo American still hold a number of concessions throughout the department, but have notbeen able to undertake their exploration programmes due to the aforementioned securityconcerns. Other junior companies such as Cosigo Resources, have entered into joint venturesto explore in Cauca. Local sources also report that a Chinese mining company made an offer tobuy a 1,400 hectares ranch in the Patía municipality to start exploration there (interview withadviser from the Governor’s office).In addition to multinational companies, there are a number of Colombian mining investorswho hold titles in Cauca. Sociedad Minera del Sur, a medium scale operation based in themunicipality of Suarez is owned by Giraldo & Duque, one of the main international tradersbased in Cali. According to local sources, this mid-scale company can process close to 300tonnes of raw material every day, including from local miner associations who haveagreements with the company to process and sell their gold (interview with local miner fromSuarez, 2016). Other smaller scale mining entrepreneurs based in Cali hold mining titles inCaucabut have not been able to establish comparable operations.Small-scale, national and international tradersInternational traders – most of whom are based in the Free Trade Zone near Cali - are sourcingfrom mining municipalities in Cauca. Cali is the main hub for gold produced in Cauca, yet localsources report some other destinations, such as Medellin, Bogotá or Buenaventura (by sea). Inthe case of Buenaventura (Valle del Cauca), illegal gold is reported to arrive by sea from the9

different gold producing municipalities located on the Pacific coast, before being smuggled toEcuador by sea (interview with police officers, 2016). While in some cases, traders sourcedirectly from small-scale mining operations and barequeros, they can also source indirectlythrough a network of small traders (compra ventas) located in the urban centres of BuenosAires, Santander de Quilichao, Argelia, Timbiquí, or Guapi, with corresponding offices in Cali(Valle del Cauca). Some of these local traders have informal agreements with internationaltraders, while others are vertically integrated.Cali hosts three major international traders and a number of smaller local traders. Giraldo &Duque is the oldest and most renowned. Between 2006 and 2007, the company was one of thefirst 100 Colombian exporters to the USA and became the first trader, in 2013, to export goldfrom the Free Trade Zone near Cali. Between 2010 and 2014 it exported close to 16 tonnes ofgold, principally to Switzerland (Metalor), the United States (Metal Republic) and India (ElEspectador, 2015). Fundición Ramirez and Northern Texas Resources Colombia (a subsidiary ofNorthern Texas Resources (NTR) which belongs to Elemetal based in the United States andUnited Kingdom), also have trading operations based in the Free Trade Zone near Cali andsource part of their gold from Cauca (interviews with international gold traders).5In addition to these three main international gold traders, Cali also hosts a number of nationaltraders, who buy their gold from the neighbouring departments of Cauca, Nariño and Chocóand then sell it to the three main international traders. According to law enforcement officers,international traders have become more reluctant to buy their gold directly from miningcooperatives or local traders due to the risk of being accused of buying illegally produced gold(interview with local source, 2016), and are now reported to be sourcing from national tradersbased in Cali. Law enforcement officers believe that the international gold traders feel more atease buying from national gold traders because they are less scrutinized by law enforcementagencies.Other traders, such as Irca, export to Miami-based subsidiaries of international refiners, suchas Halach Gold from Istanbul Gold Refinery or Kaloti (Dubai) and have increased gold exportsfrom USD 284,000 in 2015 to USD 6.2 million in 2016 (Legiscomex, 2016).Links between gold mining, armed conflict and criminal dynamicsCauca is a FARC stronghold and is also marked by an active presence of the ELN. Until 2015,the FARC guerrilla movement, which signed a peace agreement with the Colombiangovernment in November 2016, was present in more than 30 municipalities and the ELN,Colombia’s second rebel movement, in 4 municipalities (PNUD, 2014).Up until its demobilisation in February 2016, the FARC had a strong presence in the north ofCauca (municipalities of Caldono, Caloto, Corinto, Buenos Aires and Santander de Quilichao).This area constitutes a strategic corridor between the centre of the country and the Pacificcoast, where the FARC 6th Front maintained influence for the last 30 years. Today, two of the26 military sites, where the FARC demobilised, are located in this area (municipalities ofBuenos Aires, and Caldono). The FARC also operated in mining municipalities along the Pacificcoast (municipalities of Timbiquí, Guapi and López de Micay), with its 29th and 30th Fronts.The secluded nature and weak state presence have made this region a hub for illegal activities,including illegal gold mining.In the run-up to its announced demobilisation, the FARC officially abandoned its links to illegalmining in Cauca. Authorities believe, however, that the ELN is looking to progressively expand10

its presence into former FARC-controlled territories. For example, in the northern municipalityof Caloto, different sources recently reported the presence of the ELN (Milton Hernándezmobile column of the Manuel Vásquez Castaño Front).In the south of Cauca, the ELN has a stronger presence and is believed to directly control illegalgold mining activities (interview with police officers and local experts, 2016). In February 2016,media outlets reported that in the Mercaderes municipality, along the Sambingo River, the ELNreceived up to an estimated USD 1 million per month from extortion of the 2,500 miners and70 backhoes that were operating illegally (El Tiempo, 2016). Other sources suggest that theillegal armed group operating in this municipality is no longer part of the ELN, but a dissidentfaction dedicated to drug production and illegal gold mining activities (interview with localgovernment official, 2016).Despite their continued presence, both the FARC and the ELN appear to be reducing theirinvolvement in mining activities in Cauca. Local sources note that both still collect extortionpayments from illegal mining activities, particularly from barequeros, backhoe owners andlocal traders, but they reportedly do not offer them as much ‘protection’ as they did in thepast. This has forced small scale-miners, particularly illegal ones, to establish their ownprotection schemes by hiring informal armed guards or security companies (interviews withlocal experts, local authorities and police officers).Despite their presence in Cauca, the BACRIM – which emerged as a result of paramilitarydemobilisation between 2003 and 2006 - have played only a marginal role in promoting andprotecting illegal mining operations. In 2012, according to local NGOs, BACRIM were present in19 of the 42 Cauca municipalities (Indepaz 2012). While some former paramilitaries have beenpersonally linked to illegal mining activities, the BACRIM were never powerful enough tocontrol the department’s mining regions. The presence of other criminal networks involved ingold mining activities prevented them from establishing a foothold in these areas.Illegal mining in Cauca appears to be controlled by specialised criminal networks. Police,military and judicial investigations have shed light on the importance of these networks,involving small-scale miners and prospectors from Antioquia, Nariño and Valle del Cauca,national trading companies, local municipal authorities, former civil servants from the NationalMining Agency, corrupt law enforcement agents, and illegal armed groups (interview withintelligence officers). During 2015-16, when some networks were dismantled by lawenforcement agencies, it became apparent that some network members had financed politicalcampaigns at municipal levels, paid bribes to local authorities to allow the transfer of heavymachinery, bribed mining authorities to register barequeros and falsified RUCOM declarations(El País, 2015; Semana, 2016).There are unconfirmed intelligence reports that drug traffickers from Cali and Cauca were alsoinvolved in illegal mining activities. Law enforcement officers recently received informationabout a former Colombian heroine dealer extradited to the United States, who is now back toColombia and reportedly involved in illegal gold mining activities in Northern Cauca (interviewwith law enforcement officer, 2016). A drug lord known as “El Mexicano” is also believed to befinancing illegal mines in Buenos Aires and other municipalities of Northern Cauca (interviewwith law enforcement officer, 2016).The existence of relationships between drug trafficking and illegal mining is not surprising (seeOECD, 2016). In 2015, 8,660 hectares of coca were registered in Cauca, a 36% increasecompared to 2014 (UNODC, 2016). With 3,468 hectares of coca registered, the El Tambomunicipality became Colombia’s fifth most affected municipality. Although there are no11

reliable figures at departmental level, the Cauca department is also reported to host most ofthe 595 hectares of poppy crops registered at a national level (UNODC, 2016a). UNODC alsorecently reported that 70% of alluvial mining operations detected by satellite imagery werelocated in regions were coca is being farmed, with Timbiquí and López de Micay being themost significant (UNODC, 2016b).Prevalence of “Annex II risks” in CaucaThis section examines the so-called “Annex II risks” which are the risks companies shouldconsider when carrying out supply chain due diligence. These risks, outlined in more detail inAnnex II of the OECD Due Diligence Guidance, include: Serious abuses associated with the extraction, transport or trade of minerals;Direct or indirect support to non-state armed groups;Direct or indirect support for public or private security forces engaged in illegalactivity;Bribery and fraudulent misrepresentation of the origin of minerals;Money laundering and the payment of taxes, fees and royalties due to governments.Serious abuses associated with the extraction, transport and trade of goldThe worst forms of child labourCauca authorities are concerned about the impact of the illegal economy, including nonregularised mining, on children and youth. Although the Ministry of Labour reported in 2015that only 1% of the over 1,000 cases of the worst forms of child labour in Cauca were relatedto legal mining activities (SIRITI, 2016), anecdotal reports of minors working in illegal miningsites have been consistent since 2010. In 2010, the local environmental agency and theOmbudsman’s Office reported the presence of children and youth working in mines and whowere exposed to hazardous and unsanitary conditions in the municipalities of Buenos Aires,Cajibío, El Tambo, Morales, Patía, Puerto Tejada, Santander de Quilichao, Suárez(Ombudsman’s Office, 2010). This information was confirmed by site visits by staff from theOmbudsman’s Office (Ombudsman’s Office, 2015, 2016).There are a number of factors specific to this region, that have increased the risk of childrenworking in mining activities. Since the 1980s, mining in Cauca has been traditionally controlledby men (MME, 2011), but the recent growth of illegal mining activities has enticed women,particularly from Afro-Colombian communities and single mothers, to engage in barequero asa form of subsistence. While most leave their children at home, some take their children(estimated ages between 7 and 15) to work with them (Ombudsman’s Office, 2016). Youngmen (estimated ages between 15 and 17) from poor families are also looking to supplementtheir income by working at these sites. Since miners migrate from one municipality to another,many of these cases are not reported.Children working in mines have a high risk of being exposed to hazardous conditions. Forinstance, environmental authorities noticed that gold production in Buenos Aires has lowmercury recovery rates, increasing the likelihood of exposure for children working on thesesites (UNEP-Ministry of Environment, 2012). Health authorities also reported cases of youngmen

independence in 1819, mining activities decreased, leaving some Afro-Colombian communities to subsist from artisanal mining. In the early 1900s, a Franco-British company sought to undertake underground mining in Timbiquí and, in the late 1980s, a Russian company brought in new